When John Galliano was sacked from Dior this week for his drunken anti-Semitic outburst, captured and filmed on a phone, the fashion world expressed its shock and surprise. And yes, his slurred declaration that he loved Hitler is shocking - I've watched it many times over, and the impact isn't lessened by his statement yesterday that he completely denies the charges against him, and was the victim of ''verbal harassment and an unprovoked assault'' - but was his downfall a surprise? No.

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There had been whispers in the fashion industry for over a year about Galliano's increasingly bizarre public appearances. And while I never heard anything to suggest that he was making racist insults - for which he will now stand criminal trial and could even face six months in prison if convicted - the extent of his uninhibited behaviour was already the source of much gossip. Indeed, after the suicide of his contemporary Alexander McQueen just over a year ago, it seemed not entirely implausible that John Galliano's implosion might come next.

Galliano and McQueen were both widely recognised as creative visionaries, two British bad boys who had risen to huge prominence in the global fashion industry, on a trajectory that took them from being punk subversives at London art schools to the leadership of mighty Paris brands (with all the contradictions and conflicts such a move might entail).

In 1995, Galliano became the first British designer to take over as director of a French haute couture house when he was appointed at Givenchy by Bernard Arnault, the founder and chief executive of the luxury goods conglomerate LVMH; less than two years later, as Galliano was promoted to Christian Dior (a crucial element of the LVMH behemoth), McQueen followed in his footsteps to Givenchy.

I didn't know either of these designers, but I knew the stories about them, and was fortunate enough to have seen some of their astonishing catwalk shows, including Galliano's last couture collection for Christian Dior in January. It was held in the formal gardens of the Musée Rodin, a temple to French art and the beauty of the female form, and Galliano's show was an exquisitely crafted homage to the legacy of Dior's original New Look, with rippling flurries of rose-pink tulle and clouds of marabou feathers.

Afterwards, there were a few murmurs that the collection veered too much towards costume drama, but what left me feeling more uneasy was the appearance on the catwalk of Galliano himself. As was his tradition, he twirled in an outlandish costume of his own design - a black and scarlet ensemble apparently inspired by Nureyev, his hair ironed into a dark bob, his face remade into a heightened version of itself - and there was something of the grotesque about him. The way he looked seemed of a piece with the stories of his retreat from reality, of the dark place that he might be inhabiting.

Fashion is too often dismissed as superficial froth, irrelevant to the real world that we live in, and the story of John Galliano will doubtless be used as evidence for this view. But this is an oversimplification - not least because brands such as Christian Dior are immensely powerful businesses, expanding into new markets in China and the Far East, engine rooms of the economy and world markets.

On the one hand, they are profitable and pragmatic corporations, employing thousands of people and selling vast quantities of lipstick and scent to millions of customers, but they must also harness the stuff of fantasy, fuelled by the dream that is couture. In this alchemical blend of desire and economics - of artistic creations and industrial commoditisation - there is also a streak of darkness, a manifestation of the ambiguities and misogynies that can be as much a part of fashion as its flights of creativity and delight. Thus fashion becomes as much about what lies beneath as it is about the surface of things.

Of course, appearances matter - which is why on a purely practical level, LVMH had to act swiftly to remove Galliano, particularly after Natalie Portman, one of Dior's most visible celebrity pin-ups, dissociated herself from Galliano's anti-Semitic statements. Hollywood stars such as Portman are as important in the profitable formula of selling luxury products as the designers themselves, in an equation that combines the high end of celebrity and status with a broader customer appeal. Her decision not to wear Dior at the Oscars ceremony on Sunday is therefore as significant as Galliano's creative judgments as a designer.

But beyond these immediate commercial considerations, there is a debate to be had about the macabre elements of fashion that are mingled with its beauties. It would be very wrong to attribute this impulse to shock and horrify to all designers - a new generation that includes Stella McCartney and Phoebe Philo has built careers and brands on the capacity to make sleek, streamlined clothes that women really want to wear, just as Coco Chanel did when she stripped away corsets and over-embellishment, thereby conferring the same sartorial comfort and dignity to her customers that had previously been available only in men's tailoring.

But Galliano and McQueen were among those male designers who employed menace as well as elegance, producing shows that were sometimes bizarre, and occasionally terrifying. When McQueen killed himself last year, it was impossible not to be reminded of the occasions when his imagination seemed as fuelled by an Edgar Allan Poe horror story as the ambition to make marvellously crafted designs; when the models on the catwalk looked as if they had stumbled out of a gothic Bedlam, nightmarish figures whose faces were smeared with blood-red lipstick and bruised black rings around their eyes, wearing shoes that looked like instruments of torture.

If there is an element of professional suicide in Galliano's recent performance on an amateur video, spouting theatrically hateful language, then there has also been evidence of that desire to shock in the past, albeit contained within the controlled framework of a staged show.

This was embodied in his spring 2005 couture collection, when the models had malignant-looking swellings beneath their ethereal white organza gowns, and although Galliano's vision was hailed by many in the fashion press as wonderfully romantic, I found it disturbing.

So what will come next, in the cautionary tale of John Galliano? His statement, issued by his lawyers yesterday, was as mixed a message as the catwalk show just described. He announced that he had "commenced proceedings for defamation and the threats made against me", but added: "I must take responsibility for the circumstances in which I found myself and for allowing myself to be seen to be behaving in the worst possible light. I only have myself to blame and I know that I must face up to my own failures and that I must work hard to gain people's understanding and compassion. To start this process I am seeking help and all I can hope for in time is to address the personal failure which led to these circumstances and try to earn people's forgiveness. I have fought my entire life against prejudice, intolerance and discrimination, having been subjected to it myself. In all my work my inspiration has been to unite people of every race, creed, religion and sexuality by celebrating their cultural and ethnic diversity through fashion."

Galliano seems likely to go into rehab, and in doing so, may eventually also rehabilitate his career, but not at Christian Dior. The latest Dior catwalk collection will continue without him tomorrow - a billion dollar industry cannot grind to a halt, and the brand existed long before Galliano (it was, after all, established 65 years ago). Yet in an age of anxiety, of uprising in the Middle East and widespread economic uncertainty, the fashion industry can no longer rely on shock value to sell its products. The landscape is shifting, however distantly, from the gilded couture houses of Paris; although as always, the show will go on.